European financial firms are taking a beating amid fears of "a chronic profitability crisis that makes it impossible for banks to build up barely-adequate capital bases," WSJ reports.

Deutsche Bank (DB-9.8%) is down another ~10%, bringing its YTD loss to nearly 40% while its valuation has fallen to ~30% of book value, and its credit default swaps spiked to their highest levels since 2012.

News of major withdrawals out of Credit Suisse (CS-4.2%) caused its shares to sink 11% last week, hitting a 24-year low, and Santander (SAN-6.2%), BBVA (BBVA-5.4%), and UniCredit (OTCPK:UNCFF-5.5%) are down to lows seen during the last eurozone financial crisis.

"Oil and the flatter yield curve alone do not explain the 12% plunge we have seen in S&P Financials so far this year," Rosenberg says, adding that BofA (BAC-6.1%), Citigroup (C-6.2%) and Wells Fargo (WFC-3.5%) all briefly touched 52-week lows last week - "an ominous signpost."

"Multiple currencies" have been subject to attempted manipulation, says Raimund Roseler, head of banking supervision at Germany's BaFin. Those targeted tended to be the smaller currencies as opposed to large ones like the dollar and euro, he adds.

The news comes on the same day the EU charged three banks for anti-competitive behavior in interest rates and one day after Credit Suisse plead guilty to U.S. charges of tax evasion. Two months back, Swiss competition watchdog Weko became the first regulator to claim it had spotted illegal activity in currencies.

“We see continued deterioration of the litigation environment especially in the U.S.," said Deutsche Bank CFO Stefan Krause yesterday. Indeed.

The KBW Bank Index (ETF: KBE) is off about 8% from early April, with the performance of high-profile members like BofA, JPMorgan, Citigroup, Goldman is even worse (though Wells Fargo remains close to an all-time high).

It used to be, writes Michael Santoli, bank stock action was key to gauge the broader health of the market, but few are fretting now. Instead attention is being paid to the slides in the Russell 2000, high-flying growth names, and Treasury yields.

Rather than saying anything about the economy, the drop in bank shares could be more about thinning out an easy trade (long) that got too crowded. The latest BAML fund manager survey shows pros as big sellers of bank names in the last few weeks, dropping their allocations to a 10-month low. Even with the selling, their exposure to the sector remains far above the national average.

Financial ETFs are the worst performers today thanks to Bank of America's near 5% dive in the wake of the suspension of its capital return plan. BofA is a top-10 holding of no fewer than 28 of about 880 equity-based ETFs tracked by S&P Capital IQ.

The Financial Sector SDRP (XLF-0.8%) has 6.35% of its AUM in Bank of America, the Vanguard Financials ETF (VFH-0.4%) has a 5.1% weight, and the iShares U.S. Financials ETF (IYF-0.4%) 4.8%. The SPDR KBW Bank ETF (KBE-0.9%) has a 1.92% weighting.

Bank of America (BAC) is 1.1% lower in premarket action after last night's leak of the DOJ seeking more than another $13B out of the hide of shareholders over legacy mortgage issues, according to Bloomberg. The settlement would come on top of the $9.5B agreed to by the bank to resolve FHFA claims, and a deal could come within the next two months, according to sources.

Most of the loans in question became BofA's problem after it purchased Countrywide and Merrill Lynch - one made the punk loans and the other packaged them into MBS.

This deal - which would also resolve state AG charges - would tower over JPMorgan's eye-popper of a $13B settlement from last year, which included $4B for the FHFA.

They're coming for your banks next: There are another eight lenders under investigation by the DOJ and state attorneys general over similar charges.

The average compensation at the OCC and the CFPB in 2012 was $190K, writes the AEI's Paul Kupiec, which towers over the average salary of about $50K for bank employees. Is it the special skills of regulators? Probably not. OCC secretaries average about $80K per year and FDIC limo drivers pull down $82K. Human resources management trainees at the CFPB make about $111K.

In 2012, 68% of FDIC and CFPB staff - and 66% at OCC - made more than 100K per year, with 19% earning over $180K. Less than 7% of employees at these agencies earn less than 50K - put another way, 93% earned more than the average banker's salary in 2012.

Who pays? Bank shareholders (and customers), mostly, through deposit insurance premiums and examination fees levied by the agencies. The CFPB is funded through the Federal Reserve (which doesn't disclose pay, but it's likely even higher than the other regulators).

Finalizing the criteria on the eight largest banks' leverage ratios - a minimum 5% at the holding company level and 6% at the bank subsidiary level - U.S. regulators impose a far tougher standard than international norms of 3%.

The regulators at work were the Fed, the FDIC, and the OCC, and the Fed's Dan Tarullo indicates he wants to go further, signaling the central bank may boost the risk-based capital surcharge to a higher level than the international standard. The most to lose in this scenario would be investment banks like Goldman and Morgan Stanley who don't have the deposit bases of their retail brethren.

Growth over the last several quarters has been between 15-20%, says the team, but a major slowdown to a decline of 3-5% in now expected in Q1 (results begin coming in this week). The reasons are the usual suspects: Weak mortgage banking, weak capital markets, and legal and regulatory issues that are going nowhere.

Among the banks whose estimates are cut is Bank of America (BAC), now seen earning just $0.02 per share in Q1 from $0.30 previously. For all 2014, EPS should be $0.98, down from $1.06 originally forecast.

Regulators are due to vote today on whether to increase the "leverage ratio" for the eight largest U.S. banks to 5-6% of their total assets. The Basel III standard is 3%.

The move would force banks to add tens of billions of dollars in loss-absorbing capital, although many firms have already been bulking up in anticipation of the rule change.

Meanwhile, the Fed has given banks two extra years - until July 2017 - to ensure that their collateralized loan obligations (CLO) comply with the Volcker rule's restrictions on speculative investments. The extension is a reaction banks' fears that selling their CLOs would lead to substantial losses.

Add another to list of banks being downgraded in the wake of mostly conservative capital returns, and just ahead of what are expected to be sluggish Q1 earnings reports: BB&T (BBT-0.5%) is cut to Outperform from Strong Buy at Raymond James.

A few years after public and regulatory outcry forced banks to reverse course on overdraft fee hikes, lenders are lifting them again, with economic research firm Moebs Services putting the median fee at $30 in 2013, up $1 from 2012, and $4 from 2009. "Banks have a revenue gap that needs to be recouped," says Bankrate's Greg McBride.

Call it an unintended consequence of new regulation. The Fed in 2010 stopped banks from automatically charging overdraft fees on debit-card and ATM transactions, and among Dodd-Frank's rules is an amendment lowering debit-card fees charged to merchants. Overdraft fees are where the money is in checking, with KBW estimating banks generated $31.9B of overdraft revenue in 2013, well off from a peak of $37.1B in 2009.

Among those hiking: U.S. Bancorp (USB) boosted its fee to $36 from $35 last August and Boston Private Bank (BPFH-0.3%) to $30 from $25.

Banks like Wells Fargo (WFC-0.1%) and JPMorgan (JPM-0.4%) offer overdraft-protection programs where money is transferred from another account to cover the shortfall. The fee at Wells is $12.50 for each day it's used; Chase charges $10.

Count Credit Suisse's Moshe Orenbuch as surprised about the Fed's denial of Citigroup's (C-0.5%) capital return plan. Maybe Citi is just too tough for regulators to get their arms around as it is the most complicated of all the bank holding companies.

Included in the Credit Suisse report is this handy chart of dividends, buybacks, and payout ratios for all of the CCAR banks for 2013 and 2014. Things are loosening up - the median payout ratio (includes dividends and buybacks) this year of 71% compares to 59% in 2013. The dividend payout ratio rises to 26% from 23%.

It helps to be smaller - among the TBTFs, Citi's payout ratio is just 8%, BofA (BAC) 37%, JPMorgan (JPM) 56%, Morgan Stanley (MS) 41%. Wells Fargo is above the median though, being allowed a payout of 79%.

The regionals (KRE), trust banks, and credit card companies - for the most part - were all allowed payout ratios above the median.

It's a slow grind for bank capital returns (at least those subject to the CCAR), notes Goldman' Richard Ramsden, with payout ratios boosted just four percentage points to 62% this year. There are clear winners, he says: The credit card companies led by AXP and COF and the trust banks led by BK. Regional banks (KRE) boosted returns but generally fell short of expectations (with HBAN and PNC being the exceptions). Worst-performing were the TBTFs, though JPM and WFC were positives.

"CCAR highlighted the challenges large-caps have in returning excess capital," he says, with Citigroup's (C) failure a reminder the process is unpredictable. With all that excess capital remaining on the balance sheet, Ciit's 2015 goal of a 10% ROTCE appears unlikely to be met.

For Bank of America (BAC), it's resubmission - a better outcome than outright failure - reminds that even well-capitalized banks are "bound by stressed capital and could have trouble returning outsized capital."

Both Bernstein and KBW remove Outperform ratings on Citigroup (C) the morning after its capital return plan was rejected by the Fed for "qualitative" reasons. One wonders whether this disappointment wasn't already priced in as Citi has underperformed this year, and for some time been the only one of the major banks trading below book value. Shares are off 5% in premarket action.

Overall, the bank capital returns announced yesterday are below expectations, says Compass Point's Kevin Barker, but Huntington Bancshares (HBAN) - which boosted the dividend 20% and announced a buyback for about 3% of the float - was better than hoped.